Brazil is on the verge of significant economic reform as the government explores a potential tax on millionaires to offset planned income tax breaks for lower-income citizens.

Finance Minister Fernando Haddad revealed that this proposal is part of President Luiz Inacio Lula da Silva’s broader initiative to overhaul the tax system, aimed at easing the financial burden on working-class families while ensuring the nation’s fiscal stability.

Brazil’s current tax landscape

Currently, Brazil’s income tax exemption threshold is 2,824 reais (approximately $507) per month.

Lula has pledged to raise this threshold to 5,000 reais ($895.8), offering relief to millions of low-income individuals.

By increasing the exemption level, the government hopes to boost consumer spending and stimulate economic growth.

However, this tax relief for lower-income households presents a fiscal challenge.

Haddad emphasized that any reform must be “revenue neutral,” meaning the government must find ways to offset the cost of these exemptions to protect its fiscal health.

The proposal for a millionaire’s tax

One of the key options on the table is a millionaire’s tax, which would impose a 12% to 15% minimum tax on high-net-worth individuals.

This tax targets wealthy citizens who currently pay less than the proposed minimum, ensuring they contribute their fair share.

The goal is to create a more equitable tax system, reducing loopholes that allow the ultra-wealthy to minimize their tax obligations.

Haddad confirmed that this proposal is under serious consideration, as the government aims to promote greater tax justice and fund the new exemptions for low-income households.

Millionaire’s tax: legislative challenges

While the millionaire’s tax could mark a major shift in Brazil’s tax policy, it will face hurdles in Congress.

Although lawmakers approved a sweeping consumption tax overhaul last year, regulatory laws to implement those changes are still pending.

Achieving consensus in Congress will be crucial for the success of the millionaire’s tax and the broader reform package.

Upcoming legislative debates will shape the final form of the tax reforms, as lawmakers balance competing interests, including those of low-income advocates and wealthy individuals wary of higher taxes.

Sectoral implications: markets and cryptocurrencies

If enacted, the millionaire’s tax could impact multiple sectors, including traditional markets and the growing cryptocurrency space.

Wealthy investors may seek ways to reduce their taxable income, potentially shifting assets to offshore accounts or tax-advantaged investments.

Increased regulatory scrutiny of cryptocurrencies is also likely.

If the government implements the tax, similar frameworks could be applied to digital assets, leading to stricter compliance requirements for crypto investors and exchanges.

This could also open up opportunities to regulate initial coin offerings (ICOs) and other crypto-related activities.

Additional sectoral impacts

• Real Estate: Wealthy individuals may reconsider property investments due to higher taxes, which could impact property values and new developments. Rental income taxation could also create challenges for landlords and tenants.
• Luxury Goods & Services: A higher tax burden on the wealthy may curb spending on luxury items, affecting high-end retail, fine dining, and premium hospitality sectors.
• Financial Services: Wealth management firms may need to adjust their strategies to help clients navigate the new tax environment, while banks may introduce new financial products to optimize tax obligations.
• Startups & Innovation: Startups catering to affluent clients may reassess their business models. Increased compliance costs could also strain resources, particularly for innovative firms.

What to expect from the new tax

Brazil stands at a critical moment in its economic policy evolution.

The proposed millionaire’s tax, along with income tax reforms, could reshape the country’s fiscal landscape, promoting fairer economic growth.

However, success will depend on the government’s ability to foster strategic negotiations, implement a sustainable tax structure, and secure congressional approval.

The potential effects on markets, cryptocurrencies, and other key sectors will require careful management to maintain investor confidence and encourage innovation.

Balancing the needs of low-income earners by ensuring a fair contribution from the wealthy will be key to the long-term success of these reforms.

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Cerebras Systems Inc. – a California-based artificial intelligence company is seeking to go public in the US at a valuation of about $8.0 billion in 2024.

The venture-backed firm specializes in chips that are used for training large language models and even claims its product to be faster on that front compared to Nvidia.

Still, I wouldn’t want to invest in the initial public offering of Cerebras Systems whenever the opportunity materializes.

That’s because several red flags make it a risky investment.

Let’s explore each in detail.

Cerebras doesn’t have a lot of customers

To begin with, Cerebras counts the likes of AstraZeneca and GSK as customers.

But it generates more of its revenue from a single customer, “G42” which has a history of working with China. That customer based out of Abu Dhabi made up a whopping 87% of its revenue in the first six months of 2024.

So, Cerebras does claim that it will aggressively pursue opportunities in relevant sectors “where our AI acceleration capabilities can address critical computational bottlenecks.” But it has not been able to deliver on that promise so far.

“There’s too much hair on this deal. This would never have gotten through our underwriting committee,” as per David Golden, the former lead of tech investment banking at the largest US bank, JPMorgan Chase.

Big names are avoiding Cerebras

What’s also noteworthy is that Cerebras is not getting a lot of attention from the big players.

Barclays and Citi are serving as lead underwriters for its initial public offering. But neither of them historically dominates the tech IPO underwriting.

That crown sits with Goldman Sachs and Morgan Stanley instead – both of which are missing from the Cerebras deal.

Similarly, neither of the big four (KPMG, PwC, Ernst & Young, and Deloitte) have signed up as Cerebras’ auditor.

Could it be because Andrew Feldman – the chief executive of Cerebras pleaded guilty to circumventing accounting controls as the vice president of Riverstone Networks in 2007?

Whatever the reason may be, such big names choosing to remain on the sidelines may spell a huge red flag when it comes to investing in Cerebras IPO.

Finally, Cerebras is not yet a profitable company. In its latest reported quarter, it lost about $51 million which adds up to the list of reasons why I’d go into the “wait and see” mode and refrain from investing in the upcoming Cerebras IPO.  

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The fundamentals in the copper market suggest upward pressure for copper prices for the remainder of 2024. 

Copper is a versatile metal, which is used in electrical wiring to renewable energy infrastructure. 

Expectations about more stimulus packages in China and rate cuts in the US are supporting copper prices at the moment. 

But, the question remains whether copper prices can scale back over $10,000 per ton in the upcoming months. 

Copper prices around the world

China, a major market for copper, experienced a mild recovery in its physical market during August. 

“The copper grade A cathode premium in Shanghai saw an uptick, reflecting improved market conditions,” according to a report by Fastmarkets. 

The recovery was driven by expectations of better import arbitrage conditions post-LME decline, but challenges remain due to fluctuations in prices, Fastmarkets said in a report. 

In the US, copper prices remained stable, largely due to the seasonal summer lull, with premiums holding steady in the Midwest, Fastmarkets said. 

However, upward pressure in prices are likely in the coming months due to supply disruptions and demand for the red metal in green energy projects. 

In Germany, the biggest copper consumer in Europe, prices remain subdued due to sluggish demand from the automotive and manufacturing sectors. Ample stocks also weigh on sentiments. 

Outlook for rest of 2024

Copper prices are likely to rise in October-December if global fundamentals continue to support sentiments. Prices could scale back above $10,000 per ton from $9,777.50 per ton at present on the London Metal Exchange (LME). 

China’s finance ministry is set to hold a press conference on Saturday to outline further economic stimulus measures for the country. 

China is one of the top consumers of base metals in the world. More support for its economy is likely to prop up demand for commodities.

Last month, Beijing had announced a slew of measures for its economy, including interest-rate cuts and targeted support for the property sector, which sparked a rally across industrial metals., which helped prices to rise 7.6% alone in September. Prices had also moved past the psychologically-crucial barrier of $10,000 per ton level before giving up the gains. 

The price movement suggests copper prices are increasingly susceptible to China’s economic situation. 

Among industrial metals, copper and iron ore were the standout performers last month. 

Additionally, expectations of the US Federal Reserve cutting interest rates in its November meeting is also lending support to copper. 

Even though the market does not expect the Fed to cut interest rates by a larger percentage in its upcoming meetings, the smaller quantum of cuts is also bullish for commodities. 

Lower interest rates bode well for non-yielding commodities such as copper. It also increases the liquidity in the system, while borrowing costs decline, thereby investments in commodities such as copper also increase. 

At its last meeting, the Fed had cut interest rates by 50 basis points. 

Analysts at Fastmarkets said in a report:

In China, the Shanghai premium should continue its recovery in the final quarter of the year, largely due to the improved sentiment following the substantial stimulus measures implemented by the country’s authorities. 

More stimulus and further easing needed in China

Analysts at ING Group said that the economic stimulus announced by China last month were a step in the right direction. 

Lynn Song, ING Group’s China economist, said in a note”

There is still room for further easing in the months ahead, and if we see a large fiscal policy push as well, momentum could recover heading into the fourth quarter. 

The economist believes that the property sector in China has to stabilise to support growth in copper demand. The property sector is crucial for industrial metals. 

“First, we need to see prices stabilise if not recover. Second, we need to see excess housing inventories come down towards historical norms. Until then, the drag on growth will continue,” according to Song. 

Longer-term outlook for copper prices

Beyond 2024, the long-term price trajectory for copper seems bullish, especially with more emphasis on green transition, which is likely to generate more demand for the red-metal. 

“For instance, by 2025 the copper grade A cathode premium in Rotterdam is projected to rise by approximately 25%, reflecting tighter regional fundamentals and a recovering European market,” analysts at Fastmarkets said.

Refined copper consumption is also expected to rise significantly in the next decade as the world transitions to electric vehicles from fossil fuel automobiles. 

Copper will also be increasingly used in renewable energy infrastructure, which is likely to drive up demand, according to experts. 

“The anticipated structural supply deficit will likely necessitate increased investments in production facilities, further underpinning a bullish outlook for copper prices,” according to Fastmarkets. 

In August, copper ore imports had surprised on the upside and, at almost 2.6 million tons, reached the second-highest monthly figure of all time. This dampened fears that a shortage of copper ore could limit the recently rapidly expanding Chinese copper production, according to Commerzbank AG. 

Barbara Lambrecht, commodity analyst at Commerzbank, said in a report.:

Should the September figures disappoint and make August appear to have been an outlier, this should support the copper price. 

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Affirm (AFRM) stock has crawled back in the past few weeks, rising from the August low of $22.2 to $47, a 112% increase. It has also soared by 425% from its lowest level in 2023, making it one of the best-performing fintech companies in the US.

Rise of BNPL

Affirm is a top name in the fast-growing Buy Now Pay Later (BNPL), which has drastically changed and disrupted the financial services industry in the past few years. 

The industry was estimated at $378 billion in 2023, and will continue seeing double-digit growth in the next decade. 

Many consumers see BNPL as a better alternative to credit cards, which charge substantially high interest rates and late fees.

In Affirm’s case, the company does not charge any interest for most payments. Instead, most customers buy and pay in four equal installments.

It makes money by charging companies a commission for all sales it processes provided that the customer pays back the money in four bi-weekly installments. It also has interest-bearing installment loans. 

Affirm has grown rapidly over the years as it continued to add more companies as merchants. The most important addition was Amazon, the biggest e-commerce company with millions of sellers. It also has a partnership with Walmart, the biggest retailer globally.

A key challenge that Affirm faces is that the industry has become highly competitive, with firms like AfterPay, Klarna, and Zip vying for market share in the US and other countries. 

Its benefit, however, is that it has a sizable market share in the US. Also, the business has some substantial barriers to entry, making it more difficult for more companies to get in. 

Affirm’s business is growing

Affirm has become one of the fastest-growing fintech companies in the US. Its active customers have grown to over 18.6 million, up from 15.6 million in June last year. This is notable for a company that had 14 million customers in the fourth quarter of 2022.

Affirm has also continued to add more merchants in its platform. It ended the last quarter with 303k merchants, up from 234k in the fourth-quarter of 2022. This trend will likely continue in the coming years as more businesses embrace the trend.

Affirm’s annual revenue has risen from $509 million in 2020 to over $2.32 billion in the last financial year. Most of this growth accelerated during the Covid-19 pandemic when most customers turned to BNPL platforms for their checkouts.

The most recent financial results revealed that Affirm’s gross merchandise volume (GMV) rose to $7.2 billion, up from $5.5 billion in the same period last year. 

Active customers soared to 18.6 million, while the number of transactions per customer rose to 4.9. 

Affirm’s revenues rose to over $659 million in the last quarter, up from $446 million in the same quarter last year.

The management expects that GMV in Q1’254 will be between $7.1 billion and $7.4 billion, while its revenue will be between $640 million and $670 million. Its adjusted operating margin will be between 14% and 16%.

Affirm has never been profitable. Nonetheless, the company is narrowing its losses. Its annual loss moved from $985 million in 2023 to $517 million. The most recent quarterly net loss narrowed from $206 million to over $45 million.

Most importantly, Affirm is adding more services to its product, including the Affirm Money Account, where people can save and earn returns.

Read more: Affirm is no longer the exclusive provider of BNPL loans at Walmart

Affirm’s earnings ahead

Affirm stock is now reacting to a few factors. First, it is reacting to the actions by the Federal Reserve, which has started cutting interest rates. Lower rates could incentivise more consumer spending in the coming years, benefiting the biggest players in the BNPL industry.

Second, the company will publish its quarterly earnings on November 8. According to Yahoo Finance, analysts expect that Affirm’s revenue will be $663 million, up by 33% from the same period last year. 

For the year, its revenue is expected to be $3.02 billion followed by $3.67 billion in the next financial year. If the trend continues, it means that Affirm’s annual revenue will get to $5 billion in the next few years. 

Most analysts are optimistic about the Affirm stock price. Wells Fargo upgraded it to overweight, while Morgan Stanley and BTIG upgraded it to equal-weight and buy, respectively.

Affirm stock price analysis

AFRM chart by TradingView

The daily chart shows that the AFRM share price has recovered modestly in the past few weeks. It has formed a rounded bottom, a popular bullish sign, and moved to the 23.6% Fibonacci Retracement.

The stock has also formed a golden cross pattern as the 200-day and 50-day Exponential Moving Averages (EMA) have formed a golden cross pattern. 

Oscillators like the Relative Strength Index (RSI) and the MACD have also pointed upwards. Therefore, the stock will likely continue rising in the coming weeks. These gains will be confirmed if it rises above the key resistance at $52.18, its highest point in December last year.

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